How Investors Are Diversifying Their Portfolio | Benzinga Global Fintech Awards 2021

All right. So, so I talked about, I just mentioned 4 asset classes. Okay. 4 asset classes that have emerged throughout our past.

Why'd you raise 8 fingers then?

4, 2 and 2.

Okay.

All right. How's that? Uh, we, we talked about equities. We talked about futures, options, crypto. We are bringing a new asset class to the FinTech Awards this year. We're gonna be talking about real estate. We are going to be talking about alternative investments. This is is sort of the the next frontier of markets that are being democratized. So I want to welcome Benzinga editor Kevin Vanden Boss. Oh yeah, stage here.

I have not seen Kevin today. All right, Kevin, where's your tuxedo?

Yeah, it's it's there.

Pick it up later. Okay,

just imagine.

Okay, I'll drive it over to his to his house.

Okay, we'll we'll be over in like ten. All right, Kevin, Kevin, pump it up, man. Pump it up. You want me to get you some Red Bull over there?

Yeah, it'd be great.

All right, we— you should have told me. I'd rock Kevin Rebel.

Kevin. All right, all right. So tuxedo, Red Bull, anything else you need? What else do you need? I'll be over in 10 minutes.

Yeah, I think that'll cover it. 2 Red Bulls, tuxedo. Good to go.

All right, all right. Okay. All right, is Kevin taking it away to introduce the panel?

How does it work? Kevin, take it away.

All right, well, thank you guys. Um, you know, I'm super pumped about this panel because we have the, the who's who, um, In alternative investments, um, you know, some of the pioneers in this industry and innovators. So really excited. Um, we've got Yieldstreet, Alumni Ventures, CrowdStreet, and Arrived Homes, um, all a great variety of alternative investment options for individuals. I'm gonna let each of the panelists kind of briefly introduce themselves, uh, starting with Milind here at, uh, Yieldstreet.

Yeah, hi. So Kevin, very excited to join this panel, and my name is Milind Mehra. I am the founder and CEO of Yieldstreet. Yieldstreet is, uh, a direct-to-consumer digital investment platform that is opening access to alternative investments across the board. And so if you want to make some yield you know where to go, dealstreet.com.

All right, thank you. Um, next we'll hear from Luke over at Alumni Ventures.

Hey Kevin, thanks so much, thanks so much for having us. This is a great, exciting panel to be on. I'm Luke Antal. I'm a co-founder and the Chief Community Officer here at Alumni Ventures. Essentially what we do is, uh, provide actively managed venture portfolios to the individual accredited investor. And, uh, and so we're, you know, like many others on the panel here, opening up this asset class to, uh, to retail investors. And we try to do it in a simple, smart way. And we just launched a brand new website. You can check it out at ad.vc.

Awesome. Thank you, Luke. Um, Brent, um, CrowdStreet, give everybody a little background there, please.

Sure. So CrowdStreet's the number one site in the US for investing in institutional quality real estate. And this is typically commercial real estate projects, so large capitalization. You know, think— people think about office and retail kind of historically, but we're also doing lots of work in things like e-commerce distribution, warehousing, self-storage, large multifamily developments, senior living. So these are basically projects that Uh, you know, the billionaires have been investing in for decades, and we're bringing that to the individual investor. And we work with the best real estate developers in the country to make these deals happen.

Awesome. Thank you, Brent. Uh, Ryan, uh, Arrived Homes.

Yeah. Hey everyone. And Kevin, thanks for having us on. Yeah, I'm Ryan. I'm the co-founder and CEO for, for Arrived. And Arrived is a platform for investing in shares of rental homes. Starting from $100. And so instead of buying a whole home on your own, providing, you know, the large upfront down payments into individual homes and all of the work required, investors can browse homes through Arrived, similar to looking at homes on Zillow, and then, you know, with the click of a button, buy shares in those homes and build a portfolio of rental homes across the country. Arrive does all the work behind the scenes, so it truly is kind of a passive investment in the equity of individual homes, and investors still have all the control of picking what homes or what markets they want to invest in.

Awesome, thank you, Ryan. Um, so, you know, without question, uh, you know, alternative investments, you know, across the board have, you know, been gaining, you know, a lot of popularity, becoming, you know, much more mainstream. You know, why are more investors starting to add, you know, these asset classes to their portfolios?

Well, I think I'll start off, Kevin. I think it's primarily because companies like us have made it possible. You know, if you combine a few things— one, legislation changes that happened, you know, in the 2012 time period where, uh, honestly access that wasn't legal. It was actually illegal for things like real estate, you know, projects to be solicited to average investors. That law changed, which meant that companies like ours collectively were able to start and start offering this. And I think as investors realize that they're, you know, limited— their choices have been limited largely to stocks and bonds over the years, You know, they've been craving other options to get into other asset classes. So, you know, we're seeing alternatives explode, as you say, but part of it is just the legislation changes, and that created the innovation amongst the companies that are on this panel to offer this to investors.

Awesome, thank you. You know, anybody else?

I'd be happy to add in a little bit there, Kevin.

Kevin, I think just to kind of add to what Brent was saying, generally what we hear from our consumer base is that they want to modernize their portfolio. And for the last 60 years, people have told that 60/40 is the way to go. We think that 60/40 is dead. And institutional investors have 10 times more exposure to alts than a typical retail investor that has less than you know, potentially 2-3% exposure to alts. So everybody wants to invest like the top 1%. And so the way to modernize your portfolio is to get that exposure to alts. And so I think that's what we have been hearing from our investor base and our customer base quite a bit.

And I'll add on there a little bit. You know, why are investors seeking alts? You know, a lot of it in venture is driven by the return story. If you look at the sophisticated investor base, and if we hone in on, let's say, university endowments that manage over $1 billion, these guys allocate on average over 25% into private equity and venture capital. And when you see the headline returns of some of these endowments and how they're doing, and read the articles and the science behind why that is, it's really driven by the alternatives that they own. And so, you know, in the case of just venture, where, where our company Alumni Ventures plays, You know, it consists— the asset class on the whole consistently has outperformed the public markets. And that's the case especially for the top quartile venture firms, but recent data is actually showing that it's actually the case for a much, much broader set of the firms in the industry. And at Alumni Ventures, you know, I think there are a couple of other answers to the question, just to keep it really succinct. I think investors seek diversification. like Brent and Milind mentioned. And ultimately it's about access. A lot of, I think a common theme here is like, you know, retail investors traditionally have not had access to the offerings that our companies provide. And we are now, each of our companies providing that in a really simple way and investors are interested.

Luke, can I make a quick comment on what you said? I think private markets are so interesting because, you know, You know, if you think about our parents in the '80s, there was so much kind of wealth created because companies like Apple, Cisco, IBM, Sun Microsystems, Oracle, you name it, right? They went public and the consumer retail could kind of really ride their coattails to take advantage of it. Now companies are staying longer, much, much more, you know, almost double the amount of time. And so again, I think that's really where the consumer is missing out. And in the last 5 or 6 years, The ability for all of our platforms to offer that flavor of alts has been really interesting because of technology and just changes to regulation, as Brent said.

Yeah, I think I agree with all that. I think one other point is we all are offering basically private access to private markets. And so when people think about why they want to add alts to their— to be more diversified, it's because they don't want to be correlated with the public markets. So if you've got the public markets swinging, you know, up and down, you have to have some assets that are obviously a hedge against those swings. And that's what we all offer are basically, you know, private offerings that will basically ride over the swings of those public markets, as well as when we see things like recessions. You know, a lot of the time periods that we're talking about are, you know, multiple years hold periods. And the benefit of that is it allows you to ride over the top of those market dips and see a realization of your asset in the times when the market's hopefully back up. So that non-correlated element is really important as a diversification strategy.

Excellent. Yeah, I feel like, you know, and I know myself, um, and, you know, a lot of what I see is people, you know, don't want to just you know, trust, you know, putting their money with, you know, their financial advisor to just say, okay, wherever you think this should go, as much. I feel like people want to have a little more control, um, you know, a little more say over where their money goes. And, you know, these private markets, you know, definitely offer that. It's, um, you know, it's really exciting to see, you know, how far you guys have come. Um, no, you know, Brett, you touched on, um, you know, the— some changes in, you know, the regulations. Um, I know you guys all, you know, work with different ones, you know, Reg D and Reg A. Um, now Ryan, I know at Arrived Home you guys are working, uh, your offerings are Regulation A offerings, you know, correct?

Correct, yes.

Could you— yeah, yeah, just kind of, you know, some of the kind of the difference in in, you know, the 2 different, these 2 main offering types.

Yeah. And part of the, you know, access for retail investors is really about, you know, allowing people to invest without them having to be an accredited investor or, you know, having a net worth of more than $1 million or income higher than $200,000 a year. And really that evolution came about with the JOBS Act around 2015 and kind of evolving the regulation Crowdfunding Act and Regulation A or Reg A+. And really, we're following Reg A, which is essentially the vast majority of the kind of disclosure and process related to, you know, an IPO for a company. And for Arrived, we're basically going through that process for each of the homes that investors are investing in. And that means that you know, non-accredited and accredited investors can invest together, you know, under this offering structure. It also is really primarily about investor protection. So we go through a qualification process with the SEC. We publish all of our business plan and all the details related to all of our assets in the same way. You know, basically every house that we launch on our website is kind of a mini IPO. And it carries, you know, a lot of the same disclosures. We're doing, you know, annual audits and financial statement reporting directly through the SEC. And so really, that's about, you know, I think it's a mix of broadening access, but also, you know, increasing comfort that these companies and these alternative investment platforms are going through, you know, these more rigorous review processes, or, you know, they're making sure that the work is being done to make sure that they're suitable. And that they've properly disclosed everything that they're doing. And so that's a really big part for us because we really look at Arrive and our position as, you know, a starting point to get, get access to real estate as an investment class. And I think with that, that means, you know, care— providing as much education and access to information as we can along the way. And so that kind of shows up in our disclosures, but also in how we you know, kind of lay information out on, on our website so that investors have, you know, all the information that they might need about individual houses or, or markets to make decisions.

All right, thank you. Um, you know, kind of, you know, kind of go off from that. So there's, you know, a growing number of, you know, platforms and you know, types of alternative investments becoming available. Um, I mean, I see just about everything, you know, getting securitized, from artwork to, you know, sneakers and, you know, anything in between. Um, you know, what are some things that investors should be looking for, you know, when considering, you know, uh, you know, a certain type of asset class, you know, to invest in, um, or, or platform, I guess, in general?

Yeah, I'll start with that. I think, you know, we've got a great range of investment options here on this panel. You know, as Ryan said, they can start at $100 on their platform. You know, we work at CrowdStreet, we, we've taken, uh, the approach that there are— there's a, there's a long-standing network of the most successful real estate developers, uh, out there. And so what we've focused on is partnering with the very best and then bringing those deals to the individual. And so I think when you think about what, you know, diversification approach you wanna take, it really starts with what's in your portfolio already because, you know, you're gonna put money into CrowdStreet. And a lot of our investors build a million-dollar portfolio across, you know, many different geographies, different asset types, different, different real estate sponsors. And that is their overall diversification approach. But they are also going to be putting money into things like crypto and NFTs. They are intrigued by all of this. It starts with understanding what do you have if crypto swings, and Bitcoin is at $67K, but it was at $30K like 2 months ago. If you are going to withstand those swings, you should probably be invested in something that is really tangible and solid. And so that's the role we play. And it's not to say that CrowdStreet's any better than any of these other investment opportunities. It's just to say that, you know, if you're gonna invest with a 100-year-old real estate firm that's done, you know, $10 billion of deals, you're doing that for a strategy that's anchored in offsetting, you know, and taking advantage of what your portfolio mix looks like overall. Yeah,

yeah. I'll just build on that a little bit, Brent. And, uh, you know, when we think of our investors, our offerings, they're only for accredited investors. Um, and we sort of think of, you know, our, uh, our, uh, pers— one of our personas that we talk about is the heart surgeon in Des Moines, right? So somebody who's, you know, in their 50s or 60s, they've had a wildly successful career, they made all the right smart financial decisions along the way, they're already as fully diversified as what they are aware of, right? And that's, I think, where a lot of our companies on this panel come in. And coming back to this idea of access, there's this whole new world of alternative investments. And if you think about— I think our investors think of their allocations as a pie chart, right? And there are slices of that pie that they don't even know exist. And so we are all here, I think, in the alt class as a whole, right? We're all here evangelizing ourselves and one another and, and, and all of these asset classes because these folks are used to making the right financial decisions along their career. And now that they have access to these different ways to diversify, they're showing a lot of interest in it. And so, you know, I, I, it's obviously a super personal decision. Me and Ryan were joking around before we hopped on the panel that we all serve a retail base, right? There are 10 million accredited investors in the United States alone. Each one of them is making a different financial decision based on their own personal, you know, background and so on and so forth. And so, you know, I think there are some commonalities though around that diversification and access.

Yep. And Kevin, if I may jump in, I think just to offer the consumer perspective here. So what we frequently hear from our investors is they really need diversity from a yield, duration, and risk perspective when they think about alts. So, you know, you want some duration that is 2, 3 years, but then, you know, they're okay with some that is longer than that, such as funds. And then overarching the way we've kind of really tried to educate the consumer base is that you should think about income, growth, and dislocation. Like those are kind of the 3 buckets in which you can, you know, kind of build up your alts pie. And so that's really what some of the consumers really value from us because, you know, obviously Yieldstreet, as the name suggests, we were very focused on income-generating kind of alternative credit strategies that would pay you kind of a monthly, quarterly coupon. And then obviously, you know, like Brent does and, you know, Crown Street does, there's a lot of emphasis on equity, which has a really great MOIC or IRR over a longer, you know, period of time, similar to what we do even with our fund products and the third-party funds that we distribute. And so, you know, you have those 3 3 buckets in which a consumer always thinks about getting exposure to, getting exposure to alts. I think the definition of alts also, it's an interesting question to raise here in this panel. You know, some may call all of us here on this panel kind of traditional alts because now a new alt world has evolved with crypto and digital currencies. And like, generally, if you think about the millennial population, that's probably under 35, for them, alts is all about Dogecoin. And, but, you know, so that's an interesting kind of perspective that, you know, I don't know if the rest of the panel shares, but, you know, that's really how things are evolving and the alt space is evolving so quickly.

Yeah, Milind, I think that's a great point just around the yield and the role that, you know, these alts and private investments can, can provide. It's really about protecting the yield for those longer-term basis as well, where, you know, for let's say Arrived and rental homes as private rental homes as an asset class, you know, we're delivering and locking in, let's say, a 5.5% to 7%, perhaps 7.5% dividend yield right now on our current properties. But you look at public market REITs and you're at 1.5% to 2%. And that's just the you know, the discount that you're paying for that access to liquidity in the public markets, especially in this interest environment right now. I think we hear that from our client base a lot, that locking in and access to those private yields is a big driver of that decision.

Oh, thank you. So, you know, before we got on here, you know, we were all chatting and Brent, you mentioned, I think, 6 new offerings Over the course of a week. Um, so first, like, you know, how are you sourcing these? Um, you know, I guess all you guys, you know, how are you sourcing, you know, these investments, these opportunities? And, you know, what's happening, you know, before they appear on your, your platform? Um, you know, like, how do you, how do you choose who makes, you know, what makes the cut, I guess?

Yeah, I can Go ahead, Luke, go ahead.

Okay, I'll kick it off. Um, yeah, so here at Alumni Ventures, we've got about 150 employees, and about half of them are full-time venture investors, and they are spread out across 6 offices in the— over, over the whole country: San Fran, New York, Boston, Austin, Chicago. And, um, you know, they wake up every day and their mission is to go hear about, find out about, and evaluate and get into the best venture deals in the market. And the reason that we're called Alumni Ventures is that many of our funds, not all of them, but many of them are rooted in different alumni communities of universities here in the US. And so for a portion of our funds, we really are a network-powered venture firm where we tap into the alumni network of, say, Harvard or Stanford or MIT or my alma mater, Dartmouth. And that alumni community is both the source of the capital, they are our investors, it's also the source of our deal flow. And so our model is really to tap into that network and use it to, along with a lot of other data and rigor and process around evaluating the things that you'd commonly expect to evaluate when you're looking at a a private company, market size, who's the team, what are the other investors, et cetera. And we run our diligence process. We've got investment committees for our funds. All of this is under one roof of Alumni Ventures. And so we're able to share data and process. And ultimately, you know, we use a pretty rigorous process to make a decision on whether or not to invest.

Yeah, Kevin, just talking about the 6 deals we launched in a week just recently. You know, what we do is we have, similar to Luke, we have a group of CrowdStreet employees that live in all the different geographies across the US. And what they do every day is they get to know all of the real estate sponsors in each market. They meet with them regularly, you know, back to face-to-face, thankfully. And they get to know their deal flow and what they're working on. And they basically work with them to understand which of those deals make For CrowdStreet. And then from there, it gets kicked over to an investments team that— it's kind of like church and state. They then look at each deal through their own rigorous process. We— I won't, I won't bore you with all the details. We actually publish it on our website under deal review. Uh, it talks about how we look at the, you know, the team behind it, the actual project itself, the financials, etc. It's a very rigorous process. About 95% of the deals we come across don't make it to the platform because of the rigor of the process. So, uh, so basically, you know, we've invested in, in, you know, a big team across the country, and we've gotten to know hundreds of the very best real estate sponsors in the country. And that's, that's where all the deals that come on CrowdStreet originate.

All right, thank you. Um, all right, so we're We got about 4 minutes left, and I've got about 3 hours worth of questions left that, uh, I want to ask you guys. But, um, so I guess better prioritize here. You know, one thing I, you know, I definitely want to, um, you know, make sure that, you know, for the audience here. And, you know, Milan, I'd love to hear from you on this. Um, I think I was reading about some of this on your guys's website, but, you know, how much You know, how much should an investor allocate, you know, into alternative investments? And, you know, should that be like they choose, you know, whether they want to do real estate or, you know, venture capital? Or should they look for, you know, just like they want a diverse portfolio in general, should they also be diversifying across, you know, alternative assets as well?

Yep. I mean, great question. I think diversification has been a key Fascinating. Of investing for a long period of time. So we obviously encourage our investors to do that. With regards to how much allocation, so we generally tell our investors it should be between 15% and 20%. And that's compared to generally retail has less than 3% allocation compared to institutions that have more than 50% allocation. So we think that 20% is an appropriate number, but it depends on so many factors. What's your liquidity requirement? How soon do you need liquidity? And then which phase of life you're in and what kind of cash flows you have. And so I think a lot of the investors have to make sure that they are very familiar because, you know, as Ryan was mentioning, liquidity has a huge premium. And the reason why people obviously invest in public markets is that you could sell whether it's up or down. And so we always encourage people to kind of look from that lens. And then the last point I would make is that, yeah, absolutely. When you think about ALTS, again, the definition of ALTS is ever emerging, everything from like real estate to passion assets such as, you know, art that you mentioned and collectibles all the way to venture and private equity investments. And I think, you know, we obviously encourage our investors to make sure that they have a diversified approach towards investing in ALTS.

All right, thank you. All right, so we're down to about a minute. I guess I don't want to get into any more questions here, so I'll just, you know, thank you guys all for being here. Really appreciate it. If you want to just real quick let everybody know where they can find some more information. I know there's definitely, you know, a lot more to learn here. Just let everybody know your websites real quick before we sign off.

Yeah, you can find Yieldstreet at yieldstreet.com.

You can find Alumni Ventures at av.vc.

Thank you. Oh, Brett, you're, uh, you're muted there. There we go.

Yeah, just crowdstreet.com, free accounts.

Yep.

And

we're at arrivedhomes.com.

Thanks, everyone. Thank you, guys. Appreciate it.

Take care. Thank you.